Substandard nursing home quality and inadequate nurse staffing have been persistent concerns for long term care policy makers over the last three decades. In spite of this history and the increasing case-mix complexity of the nursing home population, compounded by universal nursing shortages, the majority of states plan reductions, or at least freezes, in Medicaid spending in response to record budgetary shortfalls due to declining tax revenues. The effect this may have on nursing home quality is unclear because the empirical literature has been mixed regarding the inter-relationship of factors such as Medicaid payment levels, staffing, and nursing home quality. Using newly available, national data bases covering a period of substantial volatility in Medicaid payment rates and policies (1998-2004) which integrate resident level clinical outcomes data, organizational level staffing and payer mix data with county and state data for the entire country, we propose: 1.To test the effect of changes in state-level Medicaid payment rates on nursing home skilled and unskilled staffing levels; 2.To test the effect of changes in facility-level staffing on various patient-level, risk-adjusted, nursing home quality measures; 3.To test the effect of changes in Medicaid payment rates on patient-level, risk-adjusted nursing home quality measures; and, 4.To test whether the responses to changes in Medicaid rates are similar in facilities with a disproportionately large minority population, high concentration of Medicaid residents, and private pay residents. Hypotheses addressing each aim will be tested using fixed effects models that assess the impact of payment rate changes holding facility and market characteristics constant and using multi-level models that specify which changing features of the facility and the market change along with Medicaid payment rates. Sensitivity analyses will seek to isolate those types of facilities and markets most and least likely to be responsive to changes in Medicaid payment rates in order to guide policy discussions about this important issue over the coming decade. Our results will allow providers, advocates, clinicians, consumers and policymakers to better evaluate the effects of current nursing home policies regarding payment rates and staffing mandates, build upon the strengths of such policies and suggest alternative, more focused, strategies.